What are costs that vary with production called?

Costs that vary with production are referred to as variable costs. These costs change directly with the level of output produced; for example, as production increases, the costs for raw materials, labor, and utilities typically rise. Conversely, if production decreases, these costs will also decrease.

This characteristic distinguishes variable costs from fixed costs, which remain constant regardless of the level of production; for instance, rent or salaries of permanent staff. Sunk costs are past incurred costs that cannot be recovered and should not factor into current decision-making regarding production levels. Opportunity costs represent the potential benefits lost when one alternative is chosen over another, rather than relating directly to production costs. Therefore, variable costs accurately describe those costs that fluctuate with production levels, making it the correct choice.